Rate of employment tends to decline

Despite the increasing signals of economic growth slowdown and risks in external markets causing uncertainty with respect to Latvia's economic outlook, labour demand still remains high. Meanwhile, a decline in the number of the employed reminds us of totally different challenges that can be resolved only in the long term.

In the third quarter of 2019, the unemployment rate posted a slight further decrease down to 6.0% or 58.9 thousand unemployed. This is good news, just like the fact that the number of discouraged job-seekers has declined.

However, the number of the unemployed is not the only one edging down. For the second consecutive quarter, the number of the employed has also shrunk in annual terms. Although 917.8 thousand employed persons is a higher number than that recorded in the first half of 2019, it is still below the level registered in the third quarter of 2018. If the third quarter of 2019 had seen the same number of the employed as the third quarter of 2018, the unemployment rate would be even lower now.

This could be seen as a labour market response to the slowdown in the economic growth: with output declining, businesses no longer need so many employees at this stage overall. However, if the number of the employed is contracting, while the number of the unemployed is not expanding, it means that those persons have become economically inactive.

Data compiled by the European Commission suggest that the share of businesses claiming labour shortage as a significant factor limiting business activities this year has remained at a high of the last decade. The only exception is the construction and services sector where the share of businesses singling out labour shortage as a major constraint for business growth shrank in the third quarter this year. As to employment, business sentiment still forecasts further employment growth in the next three months, albeit at a lower pace (with the exception of construction sector businesses having planned to reduce the number of the employed since July).

This suggests that the number of the employed in Latvia is decreasing also on account of population ageing rather than as a result of declining economic activity. Consequently, the above implies that availability of quality labour has to be ensured in order to support economic growth. Given the demographic and economic situation, it does not seem realistic to expect a drastic change in the number of Latvia's population in the short term. Nevertheless, improvement in their work effectiveness and efficiency can be achieved, so that the people living here are capable of creating increasingly higher value added.

It is worth mentioning again that we should pay attention to improvement of education and health care systems, in order to enable our people to work in a smarter way and so that health problems do not prevent them from doing so. At this stage, according to PISA education test results and the following rankings, we lag behind most of other developed economies of the European Union, but as to healthy life expectancy, we rank the last in the European Union.